Definition
ARR and MRR, annual recurring revenue and monthly recurring revenue, are the core measures of a subscription business. MRR is the sum of all active subscriptions normalised to a monthly amount; ARR is MRR multiplied by 12, or the sum of annual contract values. Both exclude one-off fees, services and usage that will not repeat. They answer the question investors and operators care about most: how much revenue will arrive next period if nothing changes?
In a company, ARR and MRR are the headline number on the board slide, the basis for valuation in SaaS (Software as a Service) and the metric most goals are set against. They are decomposed into new MRR from new customers, expansion MRR from upgrades, contraction from downgrades and churned MRR from cancellations. Growth rate in ARR, combined with efficiency, drives the valuation multiple. In 2026 benchmarks, companies between $1 million and $10 million in ARR typically grow 20 to 25% a year, with the top quartile above 50%.
The misconception is that ARR is revenue under accounting rules. It is not: it is a forward-looking run rate, not recognised revenue, and it should be stated consistently. Companies sometimes inflate it by including one-off services, pilot contracts or usage spikes, and sophisticated buyers and investors will discount it if the definitions are loose. Across the companies I run, €10M+ in ARR is a number I trust because every subscription in it is recurring by contract.
In practice
A company with 400 customers paying an average of €500 per month has an MRR of €200,000 and an ARR of €2.4 million. If it adds €20,000 in new and expansion MRR and loses €8,000 to churn in a month, its net new MRR is €12,000, a 6% monthly growth rate.
Why it matters
ARR and MRR are the language of SaaS. If you run a subscription business, every strategic conversation, from hiring to fundraising to selling the company, starts with this number and its growth rate. Define it strictly and report it the same way every month.
Frequently asked questions
- How do you calculate ARR?
- Take the total value of all active recurring subscriptions and normalise it to a year: monthly subscriptions multiplied by 12 plus annual contracts at their yearly value. Exclude one-off fees, professional services and non-recurring usage. ARR equals MRR times 12 when all subscriptions are expressed monthly.
- What is a good ARR growth rate for SaaS?
- It depends on stage. Under $1 million in ARR, 50% or more a year is typical for a healthy startup. Between $1 million and $10 million, the median is around 20 to 25% with top performers above 50%. Above $10 million, 20 to 30% is considered strong. Investors also weigh efficiency, such as the Rule of 40, alongside growth.